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article imageOp-Ed: Depression logic is Panic first, then think

By Paul Wallis     Jan 26, 2009 in Business
Economists are now looking at possible US job losses of 600,000 a month. That’s 7.2 million per year. One year would exceed the worst predictions. So far the pattern of responses by employers is a series of short term knee jerks and no forward logic.
The result is job losses > sales losses > business losses > job losses.
This is about as vicious as any circle needs to get, but this circle has saw teeth on it, big ones, and a lot of them.
The job losses affect the local consumer market first, then the suppliers of that market, and their suppliers. The sales losses affect producers. The business losses affect finance asset values and so on, with even theoretical money disappearing in a cloud of excuses.
Say there are job cuts worth $1 million after taxes in payroll cuts.
It doesn’t just cost $1 million in lost business. It snowballs. The money was also used as bank deposits, savings, investments, 401ks, service fees, and added values as the impact affects the bottom lines of businesses worth tens of millions.
So those job cuts aren’t going to have any trouble doing $2 million worth of actual damage. If you add the longer term investment value of money put into 401ks, you’re looking at several million, over a 5 year term, at least.
The real killers are sales losses. This is how to shrink an economy in a hurry. Turnover is important, and things just ain’t turning over. Add deflation, and pretty mediocre sales, and you’re seeing where the train hit.
Jobs, jobs, jobs is the cry, and President Obama’s stimulus is quite rightly aimed at getting the treadmill turning again. This is strictly conventional economics, it’s what you’re supposed to do in this situation. It’s got a damn sight better chance of working than the failed monetarist approach, where everything is fixed by interest rates and everyone lives in a castle.
Job creation will fix a lot of bottom lines, if it takes hold. This is going to be the first step out of the hospital bed, and nobody’s expecting miracles. You don’t replace trillions of dollars of capital with a few billion.
You do, however, make capital recovery more probable. If you also start creating viable businesses, where the reverse cycle creates capital, and the inflow of cash and demand creates some forward momentum.
Employers have a choice; they can either keep on playing How Broke Can We Get, or start trying to generate some new business. This is the sales role in its alter ego as capital creator. If employers do deals, make turnover, and start generating profit, not counseling sessions, they’ll fight their way out. This is basic sales, and with deflation looking like the most obvious next albatross to be hung around the economy’s neck, it’s more realistic. The money isn’t there to generate the old spectra of returns, so do deals where you’re moving your stock. It’s an ancient merchant approach, but the ancient merchants did manage to keep eating.
There’s a certain justice in the fact that the despised American worker, recipient of medieval pay scales and utter contempt from the business “culture” of the past, is the only real savior available.
I can see the slogan: $8-12 an hour, and you can save your country! Inspiring, eh? If these people had, or had ever had, any money to spend and invest, this situation wouldn’t be so bad.
Economists might like to consider that there may be something wrong with a stagnant pool of 100 million people in a population of 300 million who can only generate so much actual economic activity. They’re not trained, so they can’t produce big amounts of capital. They’re also not healthy, so their performance is likely to be shaky.
It’s a real pleasure to write this:
Poverty is now a luxury. The world can’t afford billions of poor people. The most effective nails in the coffin of the old socio economic structure are the pointed realities of a society which simply can’t generate capital, because of its massive imbalances.
America had a situation where a tiny minority, something like 1-5% of the country, was holding 90% of the wealth. That was about as sick a statistic as you could ever hope to see. It was a funeral notice for economic safety margins. You can get away with a “natural” imbalance, where some people are making more than others. You cannot get away with a system where more than 90% of the population are excluded from fundamental levels of economic safety.
America had no protection from its capital distribution schematic. Nearly all the eggs were in a very nominal basket.
One of the reasons things have got so bad so fast was that there was almost no capital outside the disaster area.
Another problem is that the machinery which created the mess is now being expected to fix it. The same Ship Of Fools is being asked to find the New World. Their logic, obviously, hasn’t changed. Nobody has experience in Depressions.
The fix is:
Ø Create new, viable businesses.
Ø Create and enforce a high value workforce which is capable of producing capital at the levels required for a modern society.
Ø Create new capital on a scale suitable for sustained, trustworthy economic growth.
Ø Quarantine the diseases from the past.
Ø Work on a much stronger capital distribution schematic.
Ø Regulate and enforce capital investment law.
And for God’s sake do something about that ridiculous minimum wage, and the pig it rode in on. In any other Western country you’d be classified as living in poverty.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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